Finally there is a bit of good news for beleaguered homebuyers. Amid the headlines about the housing inventory crisis, rising home prices and rising interest rates, it has been mostly overlooked. Earlier this month Fannie Mae announced that it would accept an attorney’s opinion letter in place of a title insurance policy. Here’s a quick overview
What is Title Insurance?
Title insurance is an insurance policy that provides financial protection in the event of a prior claim of ownership on the property. For example, this could be a claim related to a prior mortgage loan not properly paid off or a tax lien on the property. Most mortgage lenders require such a policy to insure the lender in the event of such a claim. And many homeowners buy a separate owner’s policy to protect their own interests. The costs of title insurance include the charge for a ‘title search’ to identify prior liens and evidence of proper satisfaction, as well as the premium for the title insurance policies and various other fees. These premiums may range from a few hundred dollars to several thousand dollars depending upon the location and value of the property.
What is the Benefit of the Attorney Opinion Letter?
In short, the cost of the Attorney Opinion Letter will generally be less expensive that the title insurance premium for the lender’s policy. The fee for the attorney opinion letter can be negotiated with the attorney. However, a title search will still be necessary and various other fees may still apply. In areas where the closing attorney performs the title search, the attorney charge for the attorney opinion letter may be lower than in places where a different entity performs the title search. It is typical for the seller to pay for the title search – and the buyer to pay for the title insurance premiums in a purchase transaction. So, the buyer may benefit from a lower cost of the attorney opinion letter as compared to the insurance premiums.
When to Use the Attorney Opinion Letter?
Fannie Mae has announced that they will purchase certain loans with an ATTORNEY OPINION LETTER in lieu of a title insurance policy beginning in September 2022. Check with your mortgage lender to see if they will accept an attorney opinion letter. For various reasons some lenders may not immediately be ready to do this. Using an attorney opinion letter for a refinance may be especially beneficial if you are refinancing and a title search on the property was performed at the time of a recent purchase. In a purchase transaction, it may be a more complicated decision depending upon the location and the complexity and history of the prior ownership of the property.
The AHA Perspective
Your America’s Homeowner Alliance helped to provide periodic insight, counsel and strategy for the group creating the Alternative to Title Insurance discussed above as the Attorney Opinion Letter (ATTORNEY OPINION LETTER). We did so not to pick “winners and losers” in the Title Insurance Industry, but to encourage a potential creative, innovative, and cost friendly solution – no matter how big or small – that could benefit existing or aspiring homeowners. We haven’t made a detailed assessment of the value of the attorney opinion letter compared to traditional Title Insurance, but we are very confident that the spirit of innovation behind this new development is healthy for consumers and very good for our members.